Rescue teams in Indonesia are gearing up for day two of their search for the missing Boeing Co. jet carrying 62 people that at least one agency has characterized as a crash after uncovering debris that are “strongly suspected” to be part of Sriwijaya Air Flight SJ182.
The plane lost radio contact shortly after taking off from Jakarta Saturday afternoon. The country’s search agency said the debris found in the Java Sea is similar to those circulating earlier on social media, and its efforts Sunday will include both air and sea, and also underwater. A local news organization said authorities received a report of a plane crashing on a nearby uninhabited island in an area north of the capital city.
The likely accident has once again pushed the nation’s aviation industry into crisis mode. The Southeast Asian nation has had a spate of plane crashes in the past decade, including the Lion Air Flight 610 disaster that killed 189 people in 2018, the first of the two 737 Max crashes before the global grounding. In December 2014, an AirAsia Group Bhd. plane plunged into the Java Sea with 162 people on board.
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Weather has been a contributing factor in several of the past crashes. On Saturday, heavy rain in Jakarta delayed the takeoff for the 90-minute flight to Pontianak on the island of Borneo. About three minutes after lifting off, it leveled off at an altitude of about 10,000 to 11,000 feet for almost a minute before a rapid descent to the water in just 14 seconds, according to Flightradar24’s tracking data. That meant it was dropping at more than 40,000 feet per minute, a rate far above routine operations.
Without access yet to the plane’s black-box flight recorders, it’s impossible to say what may have triggered the sudden dive, said Jeffrey Guzzetti, the former head of accident investigations at the U.S. Federal Aviation Administration. “Right now, given the amount of sparse information, that flight track could fit many scenarios, such as flight crew confusion, instrumentation problems, catastrophic mechanical failures or even an intentional act,” he said.
The plane Sriwijaya Air was flying is a 737-500 model that’s much older than the Max 737 aircraft.
“This is not even the model before the Max, it has been in service for 30 years so it’s unlikely to be a design fault,” Richard Aboulafia, aviation analyst at Teal Group Corp. said by phone. “Thousands of these planes have been built and production ended over 20 years ago, so something would have been discovered by now.”
The jet’s disappearance comes as the aviation industry is reeling from the effects of the coronavirus pandemic, which brought air travel to its knees. Covid-19 tore through in a tumultuous, unprecedented way — leaving carriers in a deep hole, along with a constellation of aerospace manufacturers, airports and leasing firms. The International Air Transport Association said last week that global passenger demand dropped significantly during November, down 70% versus the same period of 2019 when measured in revenue passenger kilometers.
“While we don’t know anything else about the cause of this crash, the biggest thing concerning me is serious concerns about Indonesian air safety standards that were identified by the European Union Aviation Safety Agency and others years ago,” Aboulafia said. “I am not completely certain that the proper procedures have been put in place.”
Indonesian authorities said they have sent several search vessels from Jakarta to the plane’s last known location in the Java Sea, believed to be only around 25 meters deep, and divers are preparing to search for the aircraft’s black box. First responders were also deployed to the site to aid potential survivors, local TV reported. Of the 62 people, 56 were passengers, including seven children and three infants, and there were two pilots and four cabin crew, local media reported. There were no foreign nationals onboard.
“We are aware of media reports from Jakarta, and are closely monitoring the situation,” Boeing spokeswoman Zoe Leong said in a statement. “We are working to gather more information.” Sriwijaya Air said it’s working to obtain more detailed information about the flight, and will release an official statement later.
The U.S. National Transportation Safety Board has appointed a senior investigator to assist in the probe, but is awaiting more information before determining whether it will send a team, it said in an emailed statement. Under a United Nations treaty, the NTSB along with technical experts from Boeing and possibly the manufacturers of other components would participate in the probe because the jet was built in the U.S.
The 737-500 model first flew in 1989 and, according to tracking website Planespotters.net, this particular plane first flew in May 1994. The jet’s last contact was at 2:40 p.m., according to Budi Karya Sumadi, Indonesia’s transportation minister.
Debris, Oil Spill
Fishermen in the Thousand Islands regency found debris and an oil spill in the water, according to video shown by local news channel MetroTV. Footage also showed parts found that are suspected to come from the emergency slide, with words including “Boeing” and “737” written in a tag. The regent of Thousand Islands received a report of a plane crashing on Laki Island on Saturday afternoon, he said to local news website Detik.com.
Indonesia, which had one of the fastest growing airline industries in the world prior to Covid, has a patchy safety record when it comes to air accidents. Its poor aviation history saw carriers from the nation banned from the European Union in 2007 and it was only in June 2018 that the full ban was lifted. In 1997, Garuda Indonesia Flight 152 crashed approaching an airport in Medan in North Sumatra, killing 234. The AirAsia Flight 8501 that crashed in late 2014 was en route to Singapore from Surabaya.
On Oct. 29, 2018, the Boeing 737 Max flown by Lion Air plunged into the Java Sea 13 minutes after takeoff, killing all 189 passengers and crew. That was Indonesia’s second-deadliest aircraft accident behind Garuda Flight 152.
The coronavirus pandemic has complicated aviation insomuch as pilots aren’t getting enough opportunity to fly because airlines have grounded planes and scaled back operations due to a slump in demand. On Sept. 15, an Indonesian flight carrying 307 passengers and 11 crew to the northern city of Medan momentarily veered off the runway after landing, sparking an investigation by the country’s transport safety regulator. It found the pilot had flown less than three hours in the previous 90 days. The first officer hadn’t flown at all since Feb. 1.
Saturday’s incident also follows a tumultuous period for Boeing, which only in November had its 737 Max cleared to fly again by the U.S. Federal Aviation Administration, ending the longest grounding of a jetliner in U.S. history. Brazil’s Gol Linhas Aereas Inteligentes SA was the first airline to resume regular flights using the jet, beginning Dec. 9 on domestic routes from Sao Paulo. American Airlines Group Inc. has since also reintroduced the Max on Miami-New York flights.
Earlier this month, Boeing reached a $2.5 billion agreement with the Justice Department to settle a criminal charge that it defrauded the U.S. government by concealing information about the 737 Max, capping a two-year investigation that devastated Boeing’s reputation for engineering prowess.
Sriwijaya Air was established in November 2003. Its fleet is comprised of the Boeing 737 family of jets and ATR 72-600 turboprops. While the company primarily serves domestic routes, it does fly internationally to Penang, Malaysia and Dili, Timor Leste. Flag carrier PT Garuda Indonesia briefly took over the operation of Sriwijaya and its unit NAM Air back in 2018 to expedite Sriwijaya’s debt restructuring, including clearance of dues to Garuda’s unit.
The Boeing jet in question had been operated by Sriwijaya Air since 2012, according to fleet data on Planespotters.net, and was previously used by Continental Air Lines and United Airlines Holdings Inc.
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Elon Musk loves Joe Biden
Good morning. In a lengthy phone interview with Fortune’s Vivienne Walt last week, the world’s richest man (sorry, JB) gushed over the new American president. “I’m super fired up that the new administration is focused on climate,” he said.
Musk fan boys can tell you that his political views have long leaned to the right, on many issues. He has fought unionization at his factories, and in 2018, donated far more to Republicans than Democrats.
But his turnaround on Biden should come as no surprise. The Biden team is contemplating a variety of measure to encourage electric cars and attack climate change—which can only mean more money in Musk’s pocket. It recognizes a new reality in the climate debate from a decade or two ago. Businesses used to routinely oppose climate discussions because they feared resulting taxes and regulations. But one person’s tax is another’s subsidy. And today, some of the biggest companies—Tesla included (No. 7 in market cap in the S&P 500)—are on the receiving end.
More news below. And here’s your fact for the day: For the first time in 37 years, Budweiser will not be advertising in the Super Bowl. I guess the Clydesdales are in quarantine.
What the savvy investor can learn from the bonkers rally in GameStop shares
This is the web version of the Bull Sheet, Fortune’s no-BS daily newsletter on the markets. Sign up to receive it in your inbox here.
Good morning, Bull Sheeters. Tech stocks are leading the way this morning, sending U.S. futures mostly higher, and lifting global stocks, too.
It’s a big earnings week for Big Tech with one half of the FAANGM sextet reporting in the coming days.
In today’s essay, I look at the bubbly trade in penny and loss-making stocks, including the crazy surge in GameStop.
But first, let’s see where investors are putting their money.
- The major Asia indexes are mostly higher in afternoon trading with Hong Kong’s Hang Seng up 2.4%, continuing an impressive monthlong rally.
- The big gainer is Tencent, which at one point was up more than 10% on Monday as bulls poured into call options at a staggering clip.
- China is the new global leader for business investment. The much watched figures on direct foreign investment came out this weekend, showing the U.S. lost the No. 1 position in the past year, thanks to COVID-19.
- The European bourses were mostly higher out of the gates with the Stoxx Europe 600 up 0.5% at the open, before slipping.
- President Biden phoned a slew of world leaders this weekend, including Britain’s Boris Johnson. Downing Street was quick to highlight that the topic of a trade deal came up on the call. The White House had a different recollection of the conversation.
- The one-two punch of Brexit and COVID is jangling nerves in the U.K.’s financial and business capital. Roughly 40% of Londoners say they’d consider a move across the Channel to Europe.
- U.S. futures point to a positive open. That’s after all three exchanges closed out last week in the green.
- Goldman Sachs equity strategists see signs of “froth” and “unsustainable excess” in the U.S. stock market. It’s not just with SPACs, they warn, but also the “bubble-like” enthusiasm for stocks with negative earnings. There’s more on this below in today’s essay.
- Big tech dominates the earnings calendar this week. The big names include: Microsoft (Tuesday), Apple and Facebook (Wednesday).
- Gold is flat, trading around $1,850/ounce.
- The dollar is down.
- Crude is up, with Brent trading above $55/barrel.
- As of 9 a.m. Rome time, Bitcoin was up around 1%, at $33,300.
The B-word comes up a lot on Wall Street these days.
As Goldman Sachs equity analysts wrote in a note this weekend, “among the questions we receive most frequently from clients is whether U.S. stocks trade at unsustainably high levels (read: “Bubble”).”
The answer to that question is: yes, bubbles abound. But you have to know where to look for them.
For example, equities pros struggle to find an adjective for the craze in blank-check SPACs. There have been 56 SPAC IPOs so far in 2021, raising $16 billion. (If SPACs still puzzle you, check out Fortune‘s Jeff John Roberts analysis of what a “lousy” investment the SPAC is for anybody looking to make a quick and decent return.)
There are other alarm bells Goldman sees in the markets—namely, the robust trade in penny stocks, in companies hemorrhaging losses and in overvalued stocks (as represented by EV/sales multiples hitting or exceeding 20X). It almost goes without saying that such risky bets usually don’t end well. And yet volumes in these YOLO (you only live once) trades are reaching historic highs.
EV/sales is a much watched metric. It gives investors a good idea of whether the market value of a company (factoring in its level of equity and debt) is in line with revenues. A stock with a relatively low EV/sales—say, under 1X—may be a company that’s undervalued despite decent top-line growth. A high EV/sales ratio, meanwhile, indicates investor exuberance is running hot for a business whose stock price is growing faster than sales—or so it often seems.
They tend to be highly risky.
“Since 1985,” Goldman writes, “the median stock trading at an EV/sales multiple above 20x has generated a subsequent 12-month return of -1%, compared with +6% for the median US stock.”
In the past month, nearly one-quarter (23%) of shares that have changed hands are companies with out-of-whack inflated EV/sales, as the table above shows. Meanwhile, there’s been a similar surge in the volume of trading in firms with negative earnings.
One such beloved loser is GameStop; it’s soaring again this morning in pre-market trading. The loss-making video game retailer is up nearly six-fold since Jan. 12 as retail investors go all in to punish the many shorts that are betting on its crash. It’s being called the mother of all short squeezes, and it’s triggering a whole slew of vicious take-downs on Twitter. The big scalp for the WallStreetBets crowd is the veteran activist short Andrew Left of Citron Research, who it appears is losing huge sums on his bearish position at the moment.
At one point on Friday, GameStop was the most actively traded U.S.-listed company, Bloomberg reported. Never mind that it had a rough Christmas sales period, and recently delivered a sobering outlook that involves further belt-tightening to weather its COVID-battered market.
GameStop bulls—I can’t believe I just typed those words—are going all in on the stock as if it were an e-commerce juggernaut.
If you were a bubble hunter, stocks like this one would be worth examining.
Have a nice day, everyone. I’ll see you here tomorrow… Until then, there’s more news below.
As always, you can write to [email protected] or reply to this email with suggestions and feedback.
What does big business need to do to earn your trust?
A peaceful transfer of power doesn’t mean that threats of political violence—and difficult conversations about it—have ended. Tim Ryan, the chair of PwC U.S. weighs in with some advice below. (Hint: The actual challenge leaders are facing is proving that they’re trustworthy.)
But first, here’s your Inaugural poet Amanda Gorman-inspired week in review, in Haiku.
“Where can we find light
in this never-ending shade?”
Asked by a new voice,
in a new moment,
free from the belly of a
beast that stalks us all.
It took a poet
to capture the promise of
a hard-won hill, climbed
by many on the
backs of a justice-seeking
few. Unfinished, yes
we are. But here’s a
good place to start: Pay all the
poets what they’re worth.
Wishing you a lyrically peaceful weekend.